Financial Growth Series:What You Should Know About Debt

My last post in this series was about CREDIT, what it is, how important it is, how it affects your life and how you can check your scores, if you missed that post you can view it here

Financial Growth Series: What is Credit & Why Is It Important

Since I’ve talked a little about credit (I will be talking more about it in future post) It’s also very important to talk about Debt and what it is and how it can affect your life as well. Now if you know anything about debt, you would know that it’s not good at all to be in debt or have a negative in your fiances because of debt owed. So let’s get a better understanding of debt so that we can take actions to stay clear from it or begin to get out of it.


Debt is when something, usually money, is owed by one party, the borrower or debtor, to a second party, the lender or creditor. Debt is a deferred payment, or series of payments, that is owed in the future, which is what differentiates it from an immediate purchase.

In other words, the borrower/debtor is responsible for the repayment of the debt to the lender/creditor. Usually the debt is borrowed in the form of money and is to be repaid back in the same form. You can accumulate debt through the form of paper money, but there are other ways that you can fall into debt.

Other Reasons You May Accumulate debt includes:

  • Student loans
  • Car loans
  • Credit cards
  • Medical debt
  • Home equity loans
  • Payday loans
  • Personal loans
  • IRS and government debt

Paying your loan balances is better for your credit score. Carrying a lot of debt, especially high credit card debt hurts your credit score and your ability to get approved for new credit cards and loans. Even if your debt-to-income ratio is low, if your debt hurts your credit score, you could still be denied.



Failure to repay a debt can take on many forms, and all of them can negatively affect credit scores. Failure to pay may be:

  • Missed payments  Even if you start paying again right away, the fact that you skipped a payment at all looks bad on your credit report. Late or missed payments remain on credit reports for up to seven years from the original delinquency date
  • Charge-off When a creditor charges off a debt, it means they’ve basically decided they won’t be able to get the money you owe, and wrote your account off as a loss. The charged off account is closed for any future use and the creditor may continue to report the past due amount and balance owed. Most lenders will also sell these charged off accounts to a collection agency.
  • Collections – When a creditor feels they can no longer recoup a debt, they may ask a collection agency to try to get you to pay. Or, they may sell the debt to a collection agency. Either way, collections are a type of negative information that stays on credit reports for seven years.
  • Settled accounts  A creditor may agree to accept less than the total amount you owe, in which case your debt is considered settled. However, because you didn’t repay the debt as originally agreed, settled accounts are still considered to be negative information on credit reports.
  • Repossession – When a creditor reclaims collateral for a secured loan, such as the vehicle you purchased with an auto loan, the repossession appears on credit reports. A repossession tells potential lenders you failed to repay an important debt as agreed.
  • Voluntary Surrender  When a lender agrees to take a vehicle back at your request, your voluntary surrender will appear on your credit report as a derogatory item. If there is a balance remaining from the surrender, and you fail to pay that amount, then that debt could be turned over to a collection agency.
  • Foreclosure – The home loan equivalent to repossession, foreclosure means you haven’t paid your mortgage as agreed and the mortgage lender takes possession of your house. Foreclosures remain on credit reports for seven years.
  • Bankruptcy – When you’re no longer able to manage all your debt, you may declare bankruptcy. When you file Chapter 7 bankruptcy, none of the debt included in the filing gets repaid, so the notation of the bankruptcy will remain on your credit report for 10 years. If you file Chapter 13, you’ll repay a portion of the total debt you owe, so the information will cycle off your credit report in just seven years.



Here’s what Dave Ramsey says about paying off debt…

“Personal finance is 80% behavior and 20% head knowledge. We know there are a lot of resources out there that will tell you to either pay off your largest debt or the one with the highest interest rate first. While that makes sense mathematically, paying off debt is more about your motivation than it is about the numbers. Hope has a lot more to do with your success than math does.” 

He also suggests that the Snow Ball Affect method is the best way to pay off your debts.

What is the Snow Ball Affect Method? The debt snowball method is a proven debt-reduction strategy where you pay off debts in order from smallest to largest, gaining momentum as each balance is paid off.


  1. List your debts from the smallest to largest balance. Again, disregard interest rates when you’re writing out your debts. Just stick to listing your debts based on the remaining balance.
  2. Make minimum payments on all debts except the smallest. Attack the smallest with everything you have!
  3. After you pay off the smallest debt, take the money you were paying on that debt and roll it into the next highest payment. It’s a debt snowball!
  4. Repeat this method until you cross off the very last debt.

Dave Ramsey is America’s trusted voice on money, is a National best-selling author and radio host. Learn to budget, beat debt, & build a legacy. For more insight on Dave Ramsey and his very helpful and great financial advice click the link⇒ Dave Ramsey

I also follow Dave Ramsey’s YouTube page/ Podcast Show and I have completed his bible plan Dave Ramsey’s Financial Wisdom From Proverbs on the bible app YouVersion

There are other ways and steps that you can take to get yourself back on track by getting rid of any debt you may have. Make sure you do all the work you may need to do and get all the information you need to clear up any debt you may owe because it is very important if you want to financially prosper.

In my next post for this series I will cover Ways To Dispute Negative Things or Debt On Your Credit Report. Stay Tune